Baxter Agrees to Buy Sweden’s Gambro for $2.8 Billion

Baxter, founded in 1931 as the first maker of commercially prepared intravenous solutions, according to its website, has risen 33 percent this year, giving the company a market value of about $36.1 billion. Photographer: Brent Lewin/Bloomberg

Gambro had about $1.6 billion in sales last year,
Deerfield, Illinois-based Baxter said today in a statement.
Gambro is jointly controlled by Sweden’s EQT Partners AB and
Investor AB, the investment firm controlled by Sweden’s
billionaire Wallenberg family. Including net debt, the deal is
valued at 26.5 billion kronor, Gambro said in a statement.

Baxter and Gambro had been negotiating for almost a year, a
person familiar with the talks said last month. The deal
broadens Baxter’s kidney division, which had been smaller than
its other businesses, said Matt Miksic, an analyst with Piper
Jaffray Cos. in New York. It also provides the company a way to
use overseas cash, Miksic said.

“We like the deal,” Miksic said in a telephone interview
today. He recommends buying Baxter shares. “The renal division
is a little bit undersized relative to some of their other
businesses; this balances that a bit and gives it a little more
weight.”

Dialysis Growing

Treatment with dialysis is growing at more than 5 percent
annually along with rates of diabetes and high blood pressure,
with more than 2 million people in the world currently on some
form of dialysis, Baxter said in the statement. Baxter, which
also makes blood products and intravenous drugs, trails Bad
Homburg, Germany-based Fresenius Medical Care AG in kidney-dialysis products. Gambro ranks third.

Baxter fell less than 1 percent to $65.22 at the close of
New York trading. The shares gained 4.1 percent Nov. 23 for the
biggest gain in a year after the Wall Street Journal reported
the companies were in talks on a deal.

Excluding one-time items, the transaction is expected to
trim per-share profit by 10 to 15 cents in 2013 and be neutral
or add to profit in 2014, Baxter said in the statement. The
company will fund the deal with about $1 billion of overseas
cash and about $3 billion of new debt.

“It’s a great use of their overseas cash, which has become
a challenge for some of these companies building up overseas
balances,” Miksic said. He compared the deal to Johnson &
Johnson’s $19.7 billion purchase of Synthes Inc. this year using
cash it accumulated outside the U.S. as a way to avoid paying
taxes for bringing it back into the country.

Trapped Value

“It’s almost like trapped value in these large
multinationals that have these large cash balances,” Miksic
said. “By doing a deal like this, they put it to work,
releasing value that isn’t reflected in the stock.”

Renal products accounted for about 18 percent of Baxter’s
$13.9 billion in revenue last year, according to data compiled
by Bloomberg. The purchase is Baxter’s largest in at least 20
years, eclipsing its $965 million acquisition of Immuno
International AG in 1996, the data show.

Baxter, founded in 1931 as the first maker of commercially
prepared intravenous solutions, according to its website, has
risen 33 percent this year, giving the company a market value of
about $36.1 billion. Baxter had about $3.2 billion in cash and
near-cash items at the end of September.

Baxter Advisers

Gambro was bought by Investor and EQT, a private-equity
firm backed by the Wallenberg family, in 2006. The two investors
sold some businesses and invested in Gambro after sales took a
hit from the U.S. Food and Drug Administration’s decision in
2006 to ban some of its dialysis monitors because of production
flaws.

Gambro last year sold its CaridianBCT blood-machine unit
for $2.63 billion, including debt, to Terumo Corp., Japan’s
largest medical-device maker.

Baxter has completed four acquisitions this year, according
to data compiled by Bloomberg, with the largest being its $325
million purchase of Synovis Life Technologies Inc. for its line
of soft-tissue repair products.

There have been more than 900 takeovers in the medical
products industry globally over the past five years, totaling
$65 billion, according to data compiled by Bloomberg. The median
buyers paid in a survey of more than 40 similar deals was about
12 times earnings before interest, taxes, depreciation and
amortization. Across 70 comparable takeovers, the median was
about three times revenue.